MYTH – School district revenue from state and local sources outpaced inflation by 24 percent since 1996.

REALITY: In inflation-adjusted dollars per pupil, total school district revenues have grown at an average rate of about one percent per year since FY 1996.

October 24, 2006 — The Coalition of Minnesota Businesses recently posted information regarding school finance at Do the Math: Facts about School Funding. However, the Coalition’s analysis contains serious issues regarding data and inflation adjustments which need to be noted.

First, the Coalition’s analysis counts over a quarter of school property tax increases from FY 2003 to 2007 as state aid. In FY 2003, the state significantly increased its share of school funding and took over 100 percent of general education costs. Since FY 2003, a significant portion of this aid has been shifted back onto local property taxpayers. A net amount of $159 million of school costs that were shifted back onto the property tax is overlooked in the Coalition’s analysis.

Second, the analysis underestimates inflation for school districts by using the Consumer Price Index (CPI). The State requires school districts to use the Implicit Price Deflator (IPD) for state and local government purchases under the Supplemental Truth and Taxation Law (enacted in 2005) because the CPI is not intended to measure inflation in school purchases.

Governor Pawlenty’s Senior Policy Advisor Dan McElroy agrees, stating “school districts and local units of government don’t buy the same things that households buy.” McElroy has urged the use of the state and local IPD when adjusting school costs for inflation. Paul Anton of the Governor’s Council of Economic Advisors has noted in testimony before the Senate Finance Committee that the CPI frequently understates inflation in government purchases.

The Coalition’s analysis of school revenues focuses on the period from FY 1996 to FY 2007. School revenues were growing during the period prior to the state takeover of general education in FY 2003 due to tri-partisan initiatives to reduce class sizes. Other factors driving an increased need for school revenue over this period were new mandates and growth in special education and limited English proficiency enrollment.

In terms of the current policy debate, the more relevant time frame is the period since the state takeover of general education in FY 2003. Has the state kept its promise to adequately fund education at the state level? Defenders of “no new taxes” have argued that school revenue and state aid to schools have grown over this period. Education advocates have argued that school revenue and state aid have declined in inflation-adjusted dollars per pupil.

If we use the appropriate measure of inflation, it is clear that state aid to Minnesota school districts has fallen significantly since the state takeover of general education, causing both a growth in school property taxes and a decline in school revenue.